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US drought haunting Ag Growth profits - for now

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Ag Growth International, unveiling a slide into the red, forecast a continued hangover to trade from the US drought, but only for the first half of 2013, before the prospect of a huge harvest revives orders.

The maker of silos and grain handling equipment said that the dent to demand from a diminished US harvest last year would continue to overhang trade for now, earnings before interest, tax, depreciation and amortisation to fall below year-ago levels in the first half of 2012.

"The short-term impact of the drought is expected to temper demand for both portable and commercial grain handling equipment in the US," said Ag Growth, which is based in Canada, but has the US as its biggest market.

"Inventory at the company's dealer network is slightly higher than typical, reducing their need to replenish inventory levels, while poor 2012 crop production volumes have reduced US farmer grain handling requirements."

'Very enthusiastic'

However, the "new crop season is expected to change these demand dynamics, as the market begins to focus on anticipated 2013 crop production volumes", the group said.

The US corn is currently seen setting a record high, above 14.5bn bushels.

Gary Anderson, the Ag Growth chief executive, said: "It is becoming more apparent that optimism is returning to the marketplace and based on current conditions we anticipate a quick return to a positive US agricultural environment.

"We remain very enthusiastic with respect to Ag Growth's prospects in 2013 and beyond."

Russian growth

Besides prospects for an, eventual, recovery in the US, the company also flagged improved prospects in markets outside North America, particularly in the former Soviet Union, where sales topped $30m in 2012.

Overall offshore sales last year rose 32% to Can$71.9m.

"In 2013, quoting activity is at new record highs and the company's international back order is significantly higher than at the same time in 2012," Ag Growth said.

The group stopped short of making a specific forecast for the Canadian market, in which sales soared 20% to Can$76.2m last year, helped by a recovery in harvest volumes from moisture-reduced levels in 2010 and 2011.

Into the red

The comments came as the group unveiled a loss of Can$3.44m for the October-to-December, compared with earnings of Can$3.25m a year before, on revenues down 10.7% at Can$59.9m.

US revenues for the quarter plunged 27% to Can$30.4m.

The quarterly result, equivalent to an underlying loss of Can$0.11 per share, came in below expectations of a Can$0.05-a-share profit.


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